Do More Unequal Countries Redistribute More? Does the Median Voter Hypothesis Hold?

The median voter hypothesis plays an important role in endogenous growth theories. It provides the political mechanism through which voters in more unequal countries redistribute a larger proportion of income and thus, it is argued, by blunting incentives reduce country's growth rate. However, due to the lack of data on factor income (i.e. pre-tax and transfer) distribution across households, and thus on the exact amount of gain by the poorest half of households (the poor), the hypothesis was never properly tested. We test it here on 79 observations drawn from household budget surveys from 24 democracies. We find that the data strongly support the hypothesis that countries with more unequal distribution of factor income redistribute more in favor of the poor - even when we control for the share of the elderly in the population, or for pension transfers. But the evidence on the exact mechanism whereby this takes place - the median voter hypothesis - is much weaker. We do find that the middle income groups gain more/or lose less through redistribution in countries where initial (factor) income distribution is more unequal, but this regularity evaporates only we drop pensions from social transfers and focus solely on the more redistributive social transfers. Furthermore, we cannot show that the middle income groups are always net beneficiaries of redistribution nor that the existing tax and transfer system are optimal from their perspective (in the sense that all alternative tax rates would yield lower net benefits to the middle income groups)